A couple of weeks ago I asked why people might avoid finding out how worthy a charity is. People know that they’ll give to worthy charities and yet they shy away from finding out that a charity is worthy so that they avoid giving. Why might this be?

There aren’t many situations in which rational agents choose to avoid obtaining information costlessly. The times when they might are when it gains them a strategic advantage. However, you’re not playing a game against anyone else when you pass a collector on the street. The only person that you could be said to be playing against is another temporal self. Carillo and Mariotti’s paper on strategic ignorance explains how a person might choose to avoid information in order to gain an advantage over their future self. If you’re keen to get quasi-technical about it, read on.

The idea behind strategic ignorance is that an agent who discounts in a hyperbolic fashion will sometimes not want her future self to be aware of some information. The reason is that the future self would, if she had the information, act in a manner contrary to the current self’s best interests.

In the donation example there are warm fuzzies to be gained from stopping to learn what the collection is for and from anticipating that you might do a good deed. If you do learn that the collection is for a good cause then you have to incur the cost of donating. Imagine an agent, who discounts the next period by , walking along the street before seeing the collector. She discounts both the benefit and the cost by and would choose not to give to a collector. However, as she slows for the collector, she starts to experience the undiscounted benefit and only discounts the cost by . Now the cost is smaller relative to the benefit and she might decide to donate if the charity is good enough. For some probability that the charity is worthy, the past self wouldn’t have donated, but the current self would donate.

Now comes the key part. Suppose that people tend to believe that charities aren’t usually particularly worthy but they suspect that, if they were to check, the charity would have a higher probability of being worthy than their prior estimate. Now if they slow for the collector they might find out that charities are fairly worthy after all and choose to stop and donate, which would be bad from their current point of view. Then they’ll be better off if they don’t find out the true likelihood of the charity being worthy, because that would induce their future self to donate, which their current self doesn’t want. Hence, a person might donate when faced with a worthy charity, yet choose not to disabuse themselves of the notion that most charities aren’t worthy.

Not sure if it really comes down to an informational asymmetry per se but the relative cost of obtaining that information. Most collectors wear bibs, have obvious signs on the “bucket” and possibly even a static display. Most times you can tell for whom they are collecting.

The question to my mind is the extent to which a potential donor will get a warm fuzzy. From my casual observations, Poppy Day and Breast Cancer appeals tend to get more passer-bys reaching for their wallet than Red Cross or Amnesty because they tug at the heart strings more. It is easier to avoid thinking about the hardships faced by people overseas but if your grandparents served in WW2 or your friend had a mastectomy then it hits home more. because of these intimate connections, they probably already know something about the causes. The time/opportunity cost it takes to fish out the gold coin is relatively low. Yet if its a new charity they know little about, they may ultimately believe that it is deserving of money but a) it is too remote and b) the cost incurred to obtain that information make it not worth for them (in terms of fuzzies) to stop.

I almost never give to street appeals. Not because I don’t believe in their causes but because I practice mental accounting. I set aside moeny for charities (my favs are World Vision and the Wellington Free Ambulance – *plug plug*) and that is where my donations go.

The discussion about donations brings to mind a debate I saw elsewhere about what altruism actually meant and whether it is truly altruism. Giving to charity gives the fuzzies so it is not altruistic – you are doing it to feel better. Chicken and the egg.

Indeed, there are a lot of potential explanations for why people wouldn’t give to charities. I don’t pretend to know much about the subject, but there’s certainly a lot of heterogeneity in people’s preferences across charities. I only sought to offer a model that might explain the rather counterintuitive results cited in the previous post: people would choose to give if they knew, but they choose not to know. I’m not sure this model really works to explain it, but I haven’t heard a good story from anywhere that sheds much light on it, unfortunately.